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ANTHONY L. NG v s .

PEOPLE OF THE PHILIPPINES


FACTS:
Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of building and
fabricating telecommunication towers under the trade name "Capitol Blacksmith and Builders," applied for a
credit line of PhP3,000,000 with Asiatrust Development Bank, Inc. (Asiatrust).
In support of Asiatrust's credit investigation, petitioner voluntarily submitted the following documents: (1) the
contracts he had with Islacom, Smart, and Infocom; (2) the list of projects wherein he was commissioned by
the said telecommunication companies to build several steel towers; and (3) the collectible amounts he has
with the said companies.
On May 30, 1997, Asiatrust approved petitioner's loan application. Petitioner was then required to sign
several documents, among which are 2 Trust Receipt Agreements which did not bear any maturity dates as
they were left unfilled or in blank by Asiatrust.
After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized
them to fabricate the communication towers ordered from him by his clients. As petitioner realized diculty
in collecting from his client Islacom, he failed to pay his loan to Asiatrust.
Asiatrust then conducted a surprise ocular inspection of petitioner's business through Linga, Asiatrust's
representative appraiser. Linga thereafter reported to Asiatrust that he found that approximately 97% of the
subject goods of the Trust Receipts were "sold-out and that only 3% of the goods remained."
Asiatrust then endorsed petitioner's account to its Account Management Division for the possible
restructuring of his loan. The parties thereafter held a series of conferences however e orts towards a
settlement failed to be reached.
On March 16, 1999, Remedial Account Oce, Bernardez led a complaint affidavit which consequently led
to an information for Estafa. Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a
full- blown trial ensued.
For his defense, petitioner argued that:
(1) the loan was granted as his working capital and that the Trust Receipt Agreements he signed with
Asiatrust were merely preconditions for the grant and approval of his loan;
(2) the Trust Receipt Agreement corresponding to Letter of Credit No. 1963 and the Trust Receipt
Agreement corresponding to Letter of Credit No. 1964 were both contracts of adhesion, since the
stipulations found in the documents were prepared by Asiatrust in ne print;
(3) unfortunately for petitioner, his contract worth PhP18,000,000 with Islacom was not yet paid since there
was a squabble as to the real ownership of the latter's company, but Asiatrust was aware of petitioner's

Trust Receipts Law

receivables which were more than sucient to cover the obligation as shown in the various Project Listings
with Islacom, Smart Communications, and Infocom;
(4) prior to the Islacom problem, he had been faithfully paying his obligation to Asiatrust as shown in the
Ocial Receipts thus debunking Asiatrust's claim of fraud and bad faith against him;
(5) during the pendency of this case, petitioner even attempted to settle his obligations as evidenced by the
two United Coconut Planters Bank Checks he issued in favor of Asiatrust; and
(6) he had already paid PhP1.8 million out of the PhP2.971 million he owed as per Statement of Account
dated January 26, 2000.
Both RTC and CA found petitioner guilty of Estafa.
ISSUE: WON petitioner is liable for Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD 115.
RULING: NO.
A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price
of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are,
therefore, two obligations in a trust receipt transaction: the rst refers to money received under the
obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while the
second refers to the merchandise received under the obligation to "return" it (devolvera) to the owner. A
violation of any of these undertakings constitutes Estafa dened under Art. 315, par. 1 (b) of the RPC, as
provided in Sec. 13 of PD 115.
A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction
between petitioner and Asiatrust is not a trust receipt transaction but one of simple loan.
Petitioner was transparent to Asiatrust from the very beginning that the subject goods were not being held
for sale but were to be used for the fabrication of steel communication towers in accordance with his
contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the
materials received, steel communication towers, not to sell them.
Following the precept of the law, such transactions aect situations wherein the entruster, who owns or
holds absolute title or security interests over specied goods, documents or instruments, releases the
subject goods to the possession of the entrustee. The release of such goods to the entrustee is conditioned
upon his execution and delivery to the entruster of a trust receipt wherein the former binds himself to hold
the specic goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of
the goods, documents or instruments with the obligation to turn over to the entruster the proceeds to the
extent of the amount owing to the entruster or the goods, documents or instruments themselves if they are
unsold.

Trust Receipts Law

Considering that the goods in this case were never intended for sale but for use in the fabrication of steel
communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction.
In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrust's appraiser,
Linga, who stated that the goods have been sold by petitioner and that only 3% of the goods remained in
the warehouse where it was previously stored. But for reasons known only to the trial court, the latter did
not give weight to the testimony of Linga when he testied that he merely presumed that the goods were
sold. Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the
fact that the goods were indeed sold. He did not notify petitioner about the inspection nor did he talk to or
inquire with petitioner regarding the whereabouts of the subject goods. Neither did he conrm with
petitioner if the subject goods were in fact sold. Therefore, the Memorandum of Linga, which was based
only on his presumption and not any actual personal knowledge, should not have been used by the trial
court to prove that the goods have in fact been sold. At the very least, it could only show that the goods
were not in the warehouse.
Having established the inapplicability of PD 115, this Court nds that petitioner's liability is only limited to
the satisfaction of his obligation from the loan. The real intent of the parties was simply to enter into a
simple loan agreement.
To emphasize, the Trust Receipts Law was created to " to aid in nancing importers and retail dealers who
do not have sucient funds or resources to nance the importation or purchase of merchandise, and who
may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased." Since Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have
known that the said agreement could not possibly apply to petitioner.
Moreover, this Court nds that petitioner is not liable for Estafa both under the RPC and PD 115.
The rst element of E s t a f a under Art. 315, par. 1 (b) of the RPC requires that the money, goods or other
personal property must be received by the oender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of, or to return it. But as we already
discussed, the goods received by petitioner were not held in trust. They were also not intended for sale and
neither did petitioner have the duty to return them. They were only intended for use in the fabrication of
steel communication towers.
The second element of E s t a f a requires that there be misappropriation or conversion of such money or
property by the offender, or denial on his part of such receipt.
This is the very essence of E s t a f a under Art. 315, par. 1 (b). The words "convert" and "misappropriated"
connote an act of using or disposing of another's property as if it were one's own, or of devoting it to a
purpose or use dierent from that agreed upon. To misappropriate for one's own use includes not only
conversion to one's personal advantage, but also every attempt to dispose of the property of another
without a right.

Trust Receipts Law

Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the
amount of the goods subject of the trust receipts arises and becomes due only upon receipt of the
proceeds of the sale and not prior to the receipt of the full price of the goods.
Petitioner is correct. Thus, assuming a r g u e n d o that the provisions of PD 115 apply, petitioner is not
liable for E s t a f a because Sec. 13 of PD 115 provides that an entrustee is only liable for E s t a f a when
he fails "to turn over the proceeds of the sale of the goods . . . covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt . . . in accordance with the termsof the trust
receipt."
The trust receipt entered into between Asiatrust and petitioner states: In case of sale I/we agree to hand the
proceeds as soon as received. Clearly, petitioner was only obligated to turn over the proceeds as soon as
he received payment. However, the evidence reveals that petitioner experienced di culties in collecting
payments from his clients for the communication towers. Despite this fact, petitioner endeavored to pay his
indebtedness to Asiatrust, which payments during the period from September 1997 to July 1998 total
approximately PhP1,500,000. Thus, absent proof that the proceeds have been actually and fully received
by petitioner, his obligation to turn over the same to Asiatrust never arose.
What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. It makes the
Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in the Trust Receipt
agreements in blank, since those dates are elemental part of the loan. But then, as can be gleaned from
the records of this case, Asiatrust also knew that the capacity of petitioner to pay for his loan also hinges
upon the latter's receivables from Islacom, Smart, and Infocom where he had ongoing and future projects
for fabrication and installation of steel communication towers and not from the sale of said goods. Being a
bank, Asiatrust acted inappropriately when it left such a sensitive bank instrument with a void circumstance
on an elementary but vital feature of each and every loan transaction, that is, the maturity dates. Without
stating the maturity dates, it was impossible for petitioner to determine when the loan will be due.

Trust Receipts Law

COLINARES v s . COURT OF APPEALS


FACTS:
In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite Sisters of
Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City. On 30
October 1979, petitioners obtained various construction materials from CM Builders Centre for the said
project. The following day, petitioners applied for a commercial letter of credit with the Philippine Banking
Corporation (PBC), Cagayan de Oro City Branch in favor of CM Builders Centre. PBC approved the letter
of credit to cover the full invoice value of the goods. Petitioners signed the pro-forma trust receipt as
security. The said loan was due on 29 January 1980. However, petitioners failed to pay the whole amount
on its due date. Several demand letters were sent to them. Petitioners proposed that the terms of payment
of the loan shall be modied. Pending approval of the said proposal, petitioners paid some amounts.
Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC continued to
demand payment of the balance. On 14 January 1983, petitioners were charged with violation of P.D. No.
115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.
During trial, petitioners insisted that the transaction was that of an ordinary loan. Subsequently, the trial
court convicted the petitioners for the oense charged.
On appeal, the Court of Appeals armed the conviction of petitioners and increased the penalty imposed.
ISSUE: WON the true nature of the contract was an ordinary loan or a trust receipt agreement.
RULING: The transaction was an ordinary loan.
Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already transferred to Petitioners who were to use the materials for
their construction project. It was only a day later, 31 October 1979, that they went to the bank to apply for a
loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the
bank and only released to the importer in trust subsequent to the grant of the loan. The bank acquires a
"security interest" in the goods as holder of a security title for the advances it had made to the entrustee.
The ownership of the merchandise continues to be vested in the person who had advanced payment until
he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be
turned over to him by the importer or by his representative or successor-in-interest. To secure that the bank
shall be paid, it takes full title to the goods at the very beginning and continues to hold that title as his
indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the
importer has never owned the goods and is not able to deliver possession. In a certain manner, trust
receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the
imported merchandise as soon as he has paid its price.

Trust Receipts Law

Trust receipt transactions are intended to aid in nancing importers and retail dealers who do not have
sucient funds or resources to nance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.
The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of
credit, the making of the marginal deposit and the eective importation of goods through the efforts of the
importer.
Petitioner Veloso's claim that they were made to believe that the transaction was a loan was also not
denied by PBC.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty
and abuse of condence in the handling of money or goods to the prejudice of another regardless of
whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of condence in the handling of money to the prejudice of PBC. Petitioners
continually endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged oense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners' situation. Petitioners employed no artice in dealing with PBC
and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the
express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for
their construction project. At no time did title over the construction materials pass to the bank, but directly to
the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them
under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if
not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign
lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy
of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the money, as manifested by its Affidavit of
Desistance.

Trust Receipts Law

METROBANK vs TONDAS
FACTS:
Spouses TONDAS, applied for and were granted commercial letters of credit by petitioner METROBANK
for a period of eight (8) months beginning June 14, 1990 to February 1, 1991 in connection with the
importation of raw textile materials to be used in the manufacturing of garments. The TONDAS acting both
in their capacity as ocers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities,
executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. Due to their failure
to settle their obligations under the trust receipts upon maturity, METROBANK through counsel, sent a
letter dated August 10, 1992, making its nal demand upon the TONDAS to settle their past due TR/LC
accounts on or before August 15, 1992. Despite repeated demands therefor, the TONDAS failed to comply
with their obligations stated in the trust receipts agreements, i.e. the TONDAS failed to account to
METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trust receipts.
Consequently, METROBANK through its account ocer, Labug filed a complaint affidavit for violation of
P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code.
The assigned Assistant Prosecutor of Rizal submitted a Memorandum to the Provincial Prosecutor
recommending that the complaint be dismissed on the ground that the complainants had failed to establish
the existence of the essential elements of Estafa as charged.
The recommendation was approved by Rizal Provincial Prosecutor. METROBANK then appealed to the
Department of Justice (DOJ).
On June 1, 1994, the DOJ Undersecretary reversed the ndings of the Provincial Prosecutor of Rizal and
ordered the latter to le the appropriate information against the TONDAS as charged in the complaint.
The TONDAS led with the Court of Appeals a special civil action for certiorari and prohibition with
application for a temporary restraining order or a writ of preliminary injunction. The Court of Appeals
granted the TONDAS' petition and ordered the criminal complaint against them dismissed. The Court of
Appeals held that METROBANK had failed to show a prima facie case that the TONDAS violated the Trust
Receipts Law.
ISSUE: WON the TONDAS are liable for the violation of the Trust Receipts Law.
RULING: YES.
The Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale
thereof, as a criminal oense punishable under Article 315 (1) (b) of the Revised Penal Code. The law is
violated whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1)
return the good covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. The
foregoing acts constitute estafa punishable under Article 315 (1) (b) of the Revised Penal Code. Given that
various trust receipts were executed by the TONDAS and that as entrustees, they did not return the

Trust Receipts Law

proceeds from the goods sold nor the goods themselves to METROBANK, there is no dispute that that the
TONDAS failed to comply with the obligations under the trust receipts despite several demands from
METROBANK.
Finding favorably for the TONDAS, however, and ordering the dismissal of the complaint against them, the
Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8 Million to pay the entire
principal of the outstanding trust receipts account; (2) the TONDAS obtained from a METROBANK ocer
12 a written acknowledgment of receipt of checks totaling P2.8 Million in order to show proof of compliance
with the loan restructuring proposal; (3) it was settled between the parties that the amount of 2.8 Million
should be paid to cover all outstanding obligations under the trust receipts account; (4) the money remains
deposited under the savings account of petitioners awaiting a nal agreement with METROBANK regarding
the loan restructuring arrangement; and that (5) there is no evidence suggesting that METROBANK has
been damaged by the proposal and the deposit or that the TONDAS employed fraud and deceit in their
dealings with the bank.
The foregoing findings and conclusions are palpably erroneous.
First, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts,
but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a letter dated February
28, 1992, signed by HTAC's Vice President for Finance, METROBANK was informed that the amount may
be applied anytime to the payment of the trust receipts account upon implementation of the parties of the
terms of the restructuring." The parties failed to agree on the terms of the loan restructuring agreement as
the oer by the TONDAS to restructure the loan was followed by a series of counter-oers which yielded
nothing. It is axiomatic that acceptance of an offer must be unqualified and absolute to perfect a contract.
The alleged payment of the trust receipts accounts never became eectual on account of the failure of the
parties to finalize a loan restructuring arrangement.
Second, the handwritten note by the METROBANK ocer acknowledging receipt of the checks amounting
to P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that it
was anything more than an ordinary bank deposit. The Court of Appeals implied that in making the deposit,
the TONDAS are entitled to set o, by way of compensation, their obligations to METROBANK.
However, Article 1288 of the Civil Code provides that "compensation shall not be proper when one of the
debts consists in civil liability arising from a penal oense" as in the case at bar. The r a i s o n d' e t r e for
this is that, "if one of the debts consists in civil liability arising from a penal o ense, compensation would be
improper and inadvisable because the satisfaction of such obligation is imperative."
Third, reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS
and METROBANK is simply misplaced. The negotiations pertain and aect only the civil aspect of the case
but does not preclude prosecution for the oense already committed. It has been held that "[any]
compromise relating to the civil liability arising from an oense does not automatically terminate the

Trust Receipts Law

criminal proceeding against or extinguish the criminal liability of the malefactor." All told, the P2.8 Million
deposit could not be considered as having settled the trust receipts obligations of the TONDAS to the end
of extinguishing any incipient criminal culpability arising therefrom.
As to the statement of the Court of Appeals that there is no evidence that METROBANK has been
damaged by the proposal and the deposit, it must be claried that the damage can be traced from the nonfulllment of an entrustee's obligation under the trust receipts. The nature of trust receipt agreements and
the damage caused to trade circles and the banking community in case of violation thereof was explained
as follows:
"[t]rust receipt arrangements do not involve a simple loan transaction between a creditor and a debtorimporter. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by
the trust receipt itself. The second feature is what provides the much needed nancial assistance to traders
in the importation or purchase of goods or merchandise through the use of those goods or merchandise as
collateral for the advancements made by the bank. The title of the bank to the security is the one sought to
be protected and not the loan which is a separate and distinct agreement."
xxx xxx xxx.
"Trust receipts are indispensable contracts in international and domestic
business transactions. The prevalent use of trust receipts, the danger of their misuse and/or
misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held
in trust for entruster-banks, and the need for regulation of trust receipt transactions to safeguard the rights
and enforce the obligations of the parties involved are the main thrusts of P.D. 115. As correctly observed
by the Solicitor General, P.D. 115, like Batas Pambansa Blg. 22, punishes the act "not as an o ense
against property, but as an oense against public order. . . . The misuse of trust receipts therefore should
be deterred to prevent any possible havoc in trade circles and the banking community. It is in the context of
upholding public interest that the law now specically designates a breach of a trust receipt agreement to
be an act that "shall" make one liable for estafa."
The nding that there was no fraud and deceit is likewise misplaced considering that the o ense is
punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver the
proceeds of the sale or the goods if not sold, constitutes a criminal o ense that causes prejudice not only
to another, but more to the public interest

Trust Receipts Law